Changes Set Stage for ‘Shakeout’ of Medical Suppliers, Services

Shifts in contracting practices — part of the trickle-down effects of health care reform — are going to change the landscape of medical equipment and service suppliers in California, stakeholders predict.

“I think ‘shakeout’ is a fair word to use to describe what’s happening,” said Bob Achermann, executive director of the California Association of Medical Product Suppliers. “I think you’re going to see larger companies get larger and a lot of smaller companies go out of business.”

Achermann predicted the number of California businesses providing medical supplies and services may be cut in half over the next few years.

Two changes are at the heart of the “thinning of the herd,” as Achermann calls it. One is state-driven: California is shifting beneficiaries of Medi-Cal — California’s Medicaid program — from fee-for-service to managed care. The second is a federally mandated change in the way Medicare contracts with suppliers. Neither change is directly related to the Affordable Care Act, but both are expected to increase efficiencies, reduce costs and help pave the way for the new law to reform the system.

“We think it’s ill fated, but we’ll have to wait and see,” Achermann said. “We have to move forward and participate. Our biggest worry is that patients are going to suffer because of these changes.”

Medi-Cal Shift Already Taking Toll

Businesses already are suffering as a result of the shift to managed care for Medi-Cal beneficiaries, according to Kristie Weyhe, supervisor at Kids Korner Medical Supply in San Jose, which provides incontinence supplies to children, adults and elderly individuals with special needs.

New contracting practices in Santa Clara County “will affect 200 of our clients and will cause us to lay off employees,” Wehye said. 

Kids Korner has been providing supplies and services to Medi-Cal beneficiaries for most of its 25 years in business. But things changed when Santa Clara Family Health plan, a public, not-for-profit company, became the county’s only provider of Medi-Cal managed care.

On March 1, Kids Korner received an email from Santa Clara Family Health Plan that stated, “LifeCare Solutions Inc. will become the primary vendor for home medical and respiratory equipment, enteral nutrition and medical supplies … Starting March 1, 2013, all new and renewal authorizations will be transitioned to LifeCare Solutions.”

Although the health plan is not denying other companies’ right or ability to provide supplies and services for Medi-Cal beneficiaries, “they are denying all of our renewing authorizations and new client referrals in favor of LifeCare … essentially a defacto termination,” Weyhe said.

Weyhe filed a formal complaint with Santa Clara Family Health Plan saying that as a public entity, the health plan should have given all contractors advance notice and the opportunity to bid for exclusive provider status.

“Thankfully, this is not the only health plan that we work with,” Weyhe said. “However, there are so many small mom and pop medical supply companies in Santa Clara County that have SCFHP as their sole agency … this decision will cause them to go out of business completely with no notice.”

Phone and email requests for comment from Santa Clara Family Health Plan were not returned.

Similar scenarios are playing out throughout California, where managed Medi-Cal plans are operating. In some regions, unlike Santa Clara County, multiple health plans will provide coverage for Medi-Cal beneficiaries, increasing the possibility for small suppliers to compete. But compared to the wide-open, fee-for-service days — when beneficiaries, physicians and other providers could contract with any and all — contracts are going to be harder to come by for many equipment providers and suppliers.

Medicare Changes ‘Will Be Even Worse’

“The switch to managed Medi-Cal is definitely putting a lot of businesses in jeopardy, but what’s going on in Medicare has the potential to become catastrophic,” said Tony Myrell, president of the California Association of Medical Product Suppliers.

Myrell, president and CEO of Premier Medical Transportation in Colton, San Bernardino County, predicted CMS’ move toward competitive bidding for Medicare suppliers will push many California suppliers out of business and cause those that remain to change their business model.

CMS is launching Round 2 of a nationwide switch to competitive bidding for durable medical equipment purchases by Medicare. The goal is to reduce costs and cut back on fraud.

Started in 2003, Round 1 has been successful, according to CMS officials, reducing costs for some products and services by more than 42% in nine areas of the country, including Riverside and San Bernardino counties in California.

Round 2, beginning July 1, will expand the nationwide program to 91 new areas, including several in California. CMS officials expect the program to result in Medicare beneficiaries in the Bakersfield-Delano area saving an average of 46% on some products, such as oxygen equipment, wheelchairs, respiratory equipment, hospital beds and walkers.

Critics say the new bidding process will cut down the number of suppliers and ultimately reduce patients’ access to supplies and services.

“The shift to competitive bidding — the way they’re doing it — is going to cause a lot of companies to go out of business,” Myrell said. “And that includes some of the companies that get the bids. Even if you’re a winner, you’re a loser. The amounts they’re talking about paying won’t make good business sense,” Myrell said.

In a guest editorial in the Bakersfield Californian last month, Allen Kennedy, owner of a medical equipment supply company in Bakersfield, predicted that “many patients will no longer have the ability to choose a local supplier, and this will be a major blow to small business. Businesses that currently supply wheelchairs, walkers, hospital beds, special mattress systems, diabetic testing strips, oxygen, CPAP, enteral feeding and wound therapy will all be negatively affected.”

David Sayen — Medicare’s regional administrator for Nevada, California, Arizona, Hawaii and the Pacific territories — responded with the CMS perspective in another guest editorial in the Californian two days later.

“Under this program, suppliers submit bids for equipment and supplies that must be lower than what Medicare pays for these items currently. Medicare uses the bids to set the amount it pays for the competitively bid medical equipment and supplies and qualified, accredited suppliers with winning bids are chosen as Medicare contract suppliers,” Sayen wrote.

Since Medicare is paying less, beneficiaries will pay less as well, Sayen wrote.

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